Low interest rates are a big money saver that helps you to plan your financial security better. But you can never be guaranteed to continue to enjoy this cover or protect your financial position, as several factors could combine to slide you back into normal interest rates.
Sometimes, it’s a matter of time as your low or no interest rate offer may have time cap, or the economy may force rise in rates. At other times, it could be a default in your programme with your financial institution; or simply a failure to act on your part or to take action that protects or strengthens your financial position.
There are many financially prudent steps such as using online calculators to make a plan against rising or normal, inconveniencing interest rates; as outlined below:
- Pay off high-interest debts
An increasing interest rate stings you more with variable interest rate debts – whether it’s a loan or a credit card debt. What that means is that you will pay more in interest than the principal that you actually owed. Conversely, it could imply that you make higher monthly deposits than you are presently doing. Whichever way you view it, the best bet is to prioritize offsetting variable interest rate debts.
- Ladder your bonds and certificates of deposits
Of course, you should consider your investments. One proven method of protecting your investment against fluctuating interest rates is a technique called ‘laddering.’ It means dividing your investments equally and exposing your funds to reinvestment at different times.
Bonds and certificates of deposits (CDs)are investment types you could choose to ladder. For example, if you have £10,000 in CDs, you could divide it into four CDs of £2,500; then invest one for three months, the next for six months, another one for nine months; and the last for one year. This ensures that you spread your variable interest risk and you will likely earn higher, overall- than if you had invested the whole fund at a single lower rate.
- Shorten the time span of your bond investment
Bonds are typically immune from changing interest rates; and the shorter the time span, the more secure it is from being affected by rising rates. Of course, the eventual gain will be less than a long-term bond, but holding your investment off to a much later time in the face of interest rates uncertainty, could see your income in red.
- Consider more investment options
If you have the investment nerve, you can choose to raise the engine by expanding your portfolio and spreading your asset investments. Options you could choose from include corporate debt, stocks, property investments, preferred shares, investment trusts, and convertible bonds.
With regard to corporate debt, to further provide yourself a cover against volatility, attempt diversifying industries put your funds in, as well as the issuers.